Free Microeconomics MCQs with Answers

• A. Provide benefits for all producers and consumers
• B. Increase the nation's aggregate income
• C. Reduce unemployment for all domestic workers
• D. Ensure that industries can operate at less than full capacity

Explanation: Both technological progress and international trade can raise productivity or specialization, increasing a nation’s aggregate real income.

• A. Technological progress, but not international trade
• B. International trade but not technological progress
• C. Technological Progress and international trade
• D. Neither technological progress nor international trade

Explanation: Technological progress raises productive efficiency, while international trade permits specialization and access to goods at lower…

• A. Imported, but not exported
• B. Exported, but not imported
• C. Exported and imported
• D. Neither imported not exported

Explanation: The United States both imports automobiles from foreign producers and exports vehicles to overseas markets.

• A. a final good
• B. an intermediate good
• C. an injection
• D. a leakage

Explanation: Steel sold to a car producer is used as an input in producing cars, so it is an intermediate good rather than a final good.

• A. benefits if each acts in his/her own interest
• B. will increase their profits in a free market
• C. should act to maximize economic growth
• D. should act to promote the public interest

Explanation: Smith's invisible hand suggests that, under competition and appropriate institutions, individuals pursuing their own interests can…

• A. be a manufactured good
• B. be a primary product
• C. have a low price elasticity of supply
• D. have a high price elasticity of demand

Explanation: A commodity with relatively inelastic supply is easier for an export cartel to control because member producers cannot quickly expand…

• A. relatively greater than
• B. relatively less than
• C. the same as
• D. Any of the above

Explanation: With highly inelastic supply, demand shifts produce relatively large price changes but relatively small quantity changes.

• A. lower tariff rates on goods from nations with normal trade relation status
• B. lower tariff rates on goods from nations with most favored nation status
• C. low or zero tariffs on goods from certain developing countries
• D. identical tariff rates in products from all countries of the world

Explanation: The United States applies different tariff rates through normal or most-favored-nation rates and preferential schemes for some developing…

• A. tariff-rate quotas applied to imported goods
• B. production and export controls
• C. buffer stocks
• D. multilateral contracts

Explanation: International commodity agreements have used production or export controls, buffer stocks and multilateral contracts to reduce price…

• A. international commodity agreements program
• B. multilateral contract program
• C. generalized system of preferences program
• D. export-led growth program

Explanation: The Generalized System of Preferences allows industrial countries to grant developing countries unilateral, non-reciprocal tariff…

• A. be a manufactured goods
• B. be a primary product
• C. have high price elasticity of supply
• D. have a low price elasticity of demand

Explanation: An export cartel is more effective when foreign buyers cannot easily reduce their purchases after a price increase, meaning demand is…

• A. normal trade relation status
• B. most favored nation status
• C. offshore assembly provisions
• D. Generalized System of Preferences

Explanation: The Generalized System of Preferences gives selected developing countries lower tariff rates than those applied to other countries.

• A. export promotion
• B. import promotion
• C. international commodity agreements
• D. multilateral contracts

Explanation: Export promotion encourages production for world markets and uses comparative advantage as a guide to allocating resources.

• A. international dumping
• B. countervailing duties
• C. Strategic trade policy
• D. export promotion policy

Explanation: Strategic trade policy uses government intervention, such as targeted subsidies or protection, to help domestic firms obtain economic…

• A. eliminate all tariffs between countries
• B. increase all tariffs between countries
• C. maintain a nondiscriminatory structure of tariffs
• D. maintain a discriminatory structure of tariffs

Explanation: Most-favored-nation treatment requires a country to apply the same trade terms, especially tariff rates, to all member countries rather…

• A. increase consumer surplus in the importing country
• B. decrease producer surplus in the importing country
• C. impose a price floor on foreign prices in the importing country
• D. impose a price ceiling on foreign price in the importing country

Explanation: An antidumping tariff prevents foreign firms from selling below the permitted benchmark price in the importing country, functioning like a…

• A. predatory dumping represents the most common form of dumping by U.S firms
• B. U.S firms can obtain protection from foreign dumping, even though this protection tends to harm overall U.S welfare
• C. dumping can never be a profit-maximizing strategy for U.S firms to pursue
• D. U.S firms rarely if ever, engage in distress dumping or persistent dumping

Explanation: U.S. firms can seek antidumping protection even though the resulting higher prices and reduced competition may lower overall U.S. welfare.

• A. generalized system of preference
• B. countervailing duty
• C. domestic content
• D. safeguards

Explanation: Safeguards, also called escape-clause protection, temporarily shield domestic producers from fairly traded imports that cause serious…

• A. are abolished by the World Trade Organization
• B. result in decreases in consumer surplus for domestic households
• C. are imposed by industrial countries but not developing countries
• D. result in lower-priced goods for domestic consumers

Explanation: Antidumping duties raise the domestic price of imported goods, reducing consumers' purchasing power and consumer surplus.

• A. it reduces the sovereignty of member countries
• B. favors free trade over the quality of the environment
• C. it has no way to solve trade disputes among member countries
• D. it is a puppet of multinational corporations

Explanation: The WTO has a formal dispute-settlement system, so saying it has no way to resolve trade disputes is the exception.